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DATA & ANALYSIS

Saturday, 31 August, 2019, 12 : 00 PM [IST]

ICRA notes a fluctuating growth trend in domestic passenger traffic

The domestic passenger traffic (DPT) growth in July 2019 has moderated to 3% Y-o-Y from a Y-o-Y growth of 6.2% in the previous month, June 2019. For the four months of the current fiscal, 4M FY2020, the DPT has witnessed a Y-o-Y growth of a mere 1.7%. The growth trend in FY2020 so far has been rather fluctuating, in April 2019, the DPT growth reported a Y-o-Y de-growth of 4.4%, the first after six years of monthly Y-o-Y growth. The DPT rebounded marginally in May 2019, with a Y-o-Y growth of 3.3% and further in June 2019 with a Y-o-Y growth of 6.2%. As per ICRA note, this is primarily attributable to the gradual increase in capacity as airlines continued their capacity expansion and also some airlines started redeploying some of the grounded aircrafts of Jet Airways.

Dwelling deeper, Kinjal Shah, Vice President and Co-Head, Corporate Sector Ratings, ICRA, says, “Overall, the subdued growth in the domestic passenger traffic growth can also be attributed to the muted capacity increase. During June 2019, the domestic capacity (as denoted by available seat kilometers or ASKMs) witnessed a modest Y-o-Y growth of 3.1%. For 3M FY2020, the domestic ASKM growth was a muted 2.0%.  This is majorly attributed to the eventual discontinuation of the operations of Jet Airways with effect from April 18, 2019. Furthermore, Indigo and SpiceJet, which together accounted for ~62.8% of the domestic airline industry capacity during June 2019, witnessed a 30.3% and 30.5% Y-o-Y increase in their ASKMs, respectively, during 3M FY2020. However, the addition has been higher on the international routes than domestic, thereby impacting the overall domestic industry capacity addition. For 3M FY2020, while Indigo’s ASKMs for international operations increased Y-o-Y by 60.4%, the addition to domestic ASKMs was only 24.9%. Similarly, for SpiceJet, while its international ASKMs increased Y-o-Y by 39.0% for 3M FY2020, its domestic ASKMs increased by only 28.1%.”

As the airlines continue to expand their fleet, resulting in a gradual correction in the demand-supply imbalance and thus a further moderation in airfares, the domestic passenger traffic growth is expected to increase in the near to medium term. Indigo has announced a ~30% increase in its capacity in FY2020 (approximately half of which will be for the domestic operations), while SpiceJet has announced an increase of 80%. During 3M FY2020, while AirAsia and Go Air witnessed Y-o-Y improvement in their passenger load factors (PLFs), all other airlines reported a Y-o-Y decline in their PLFs.

As per ICRA, with regards to key cost component for the aviation industry, aviation turbine fuel (ATF) prices, after 18 months of Y-o-Y increase, the same in February 2019 witnessed a Y-o-Y decline of 5.1%. However, the ATF prices increased again from March 2019, with the April 2019 ATF prices higher by 3.1% Y-o-Y and 1.1% sequentially. May 2019 witnessed a further Y-o-Y and sequential increase of 0.4% and 2.4%, respectively. However, June 2019 witnessed a Y-o-Y and sequential decline of 6.5% and 0.3%, respectively. The ATF prices witnessed a further sequential decline of 5.5% and Y-o-Y decline of 9.2% in July 2019, but increased sequentially by 3.3% and declined Y-o-Y by 7.9% in August 2019.

“The industry reported sizeable improvement in profitability in Q4 FY2019 and Q1 FY2020 due to the increase in air fares post a decline in capacity due to the grounding of aircraft of Jet Airways and its eventual discontinuation of operations. However, with the capacity expansion planned by the various airlines, the industry is likely to start facing pressure on yields and thus profitability,” concludes Shah.

 
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